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AGL cuts profit forecast

Greg Roberts

The nation's second-largest energy retailer AGL Energy has blamed intense competition and weak demand for a reduction in expected profit.

AGL Energy said on Thursday it expected full year net profit to be at the lower end of guidance in the range of $590 million to $640 million when it reports in August.

The company's shares tumbled in response, down 63 cents, or 4.02 per cent, to nine-week lows of $15.05.

AGL was widely applauded in February for exiting the practice of door-knocking to pick up new electricity customers, but rival Origin Energy has since substantially increased its door-knocking and phone calls, offering discounts of up to 25 per cent.

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AGL said it had been forced to increase its own activities to keep customers to counter the heavy competitor discounting, chief executive Michael Fraser told the Macquarie Australia conference in Sydney.

The situation had created unprecedented churn volumes, he said, meaning customers switching.

Origin, the country's largest energy retailer, has downgraded its own profit forecasts in recent months and announced plans to cut 850 jobs.

AGL said it was being buffeted by soft wholesale market conditions in southern markets (NSW and Victoria) and high wholesale prices in Queensland where regulation keeps retail pricing down.

The situation was worst in NSW, where business activity including manufacturing was weak and will get worse if gas supply is siphoned off for LNG exports driving prices up, according to AGL.

That then raised doubts about the value and attractiveness of state-owned NSW generation assets that have been put up in a multi-billion dollar auction, where it says nearly one quarter of capacity is not being used, Mr Fraser said.

He predicted coal-fired power generation would rise due to current low carbon prices, which is a positive for AGL after it spent $448 million buying the Loy Yang coal fired power station.

There have been complaints of past gold-plating investment in NSW power generation by companies to increase revenue under the previous state government.

Offsetting that are the write-downs AGL expects to make on its Camden NSW coal seam gas project following the introduction of new laws restricting where drilling can occur.